Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

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invest2bfree
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Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
401K:(VDIGX 70%, VGIT 30% ) Taxable:(VT 70, BND 30%)
Wanderingwheelz
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Wanderingwheelz »

invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
When do you plan to make your next big change? Why?
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invest2bfree
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

Wanderingwheelz wrote: Fri Aug 27, 2021 7:57 am
invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
When do you plan to make your next big change? Why?
Currently no plans of changing. Key question is will I see a significant under performance with a value weighted portfolio.

I did seriously think about the following but because of valuation did not include vti/vxus.
25% VTI
25% VXUS
25% SCHD
25% SCHY
401K:(VDIGX 70%, VGIT 30% ) Taxable:(VT 70, BND 30%)
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JoMoney
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by JoMoney »

Your change from 40% bonds to a 100% stock portfolio is pretty severe. I'm not necessarily opposed to people having a stock heavy portfolio if that's the risk profile they want, but that's a pretty big shift and it's shifting from a less risky to more risky position.
SCHY is a pretty new fund, but I would be concerned about how thinly traded it is, with only $96M in assets.
These are pretty narrow funds, I think they invest in 100 stocks (each), and a heavy tilt to the "Value" style. I have no idea what their future performance will be, but there's enough difference where it could vary quite a bit from what the broad market does. They do seem to be mostly large cap stocks with some sort of viability screen applied, so it might not be too bad. The turnover in these funds seems on the higher side of what I would like.
Is there a reason you want such a heavy dividend tilt? and why did you choose the Schwab ETF's over Vanguard's broader market-cap weighted High Dividend funds?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
student
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by student »

I also don't fully understand the reasons behind moving into 100% stock. You mentioned you don't want to sell stock in a downmarket and you also need money for living expenses, so dividend may help you ride it out. My questions are (1) are the dividend sufficient to support you? (2) what if they cut the dividend during a downturn?
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by L84SUPR »

Priorities change. Sometimes we have epiphanies and learn something about what is really important to us. Since 2014 I have planned to ride out one more dip and retire on the other side. Because my target date was flexible I had a 85/15 AA (pride and greed may have been involved).

About a month ago I asked my wife how certain she wanted to be that we could retire on the day we want. She said "pretty darn certain" which echoed my sentiments. So I YOLOed 6.5 years of expenses into TSP G with another 1.5 years to follow in contributions. I went from "I don't need a tent" to "look at my beautiful tent" virtually overnight.

I'm not saying I am a good role model. I'm saying we are human beings that don't always know what we really want. When we finally figure it out I believe a Boglehead would correct swiftly.

Edit: others are more qualified to comment on whether your changes match your new goals. My comment only address the human nature aspect.
Last edited by L84SUPR on Fri Aug 27, 2021 8:29 am, edited 1 time in total.
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invest2bfree
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

JoMoney wrote: Fri Aug 27, 2021 8:13 am
Is there a reason you want such a heavy dividend tilt? and why did you choose the Schwab ETF's over Vanguard's broader market-cap weighted High Dividend funds?
It is because of performance.

Somehow the value screens in schd makes it very similar to vdigx a fund I like. I wanted a etf very similar to vdigx and schd fits the bill.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
401K:(VDIGX 70%, VGIT 30% ) Taxable:(VT 70, BND 30%)
exodusNH
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by exodusNH »

invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
1) Dividends drop the stock price by the equivalent amount. You have no more wealth after a dividend than before. If you take the cash, you simply have altered your holdings. Most of the articles you hear that say, "over the last X years the market has returned Y%" assume dividends are reinvested.

2) Dividends force you to take income (and pay taxes) when you might not want it, some of which will be at your marginal tax rate.

3) Dividends are not guaranteed even for a company that has regularly paid them. (Q.v. AT&T)

4) Bond yields are low, below even recent historical inflation. The majority of the market thinks the current inflation is temporary, based on the coupon on new treasury issues.

5) You have moved to a 100% stock position with a pretty small number of stocks. You have greatly increased your risk. It might pay off. It might not. In March of 2020, SCHD dropped as much as SPY and VTI. VTI, SPY, and SCHD basically move in lockstep: https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Mike Scott »

My opinion is that you have absolutely added more risk and will pay more taxes for a dubious benefit while shifting away from one of the all time classic standard portfolios.
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invest2bfree
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

exodusNH wrote: Fri Aug 27, 2021 8:33 am
invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
1) Dividends drop the stock price by the equivalent amount. You have no more wealth after a dividend than before. If you take the cash, you simply have altered your holdings. Most of the articles you hear that say, "over the last X years the market has returned Y%" assume dividends are reinvested.

2) Dividends force you to take income (and pay taxes) when you might not want it, some of which will be at your marginal tax rate.

3) Dividends are not guaranteed even for a company that has regularly paid them. (Q.v. AT&T)

4) Bond yields are low, below even recent historical inflation. The majority of the market thinks the current inflation is temporary, based on the coupon on new treasury issues.

5) You have moved to a 100% stock position with a pretty small number of stocks. You have greatly increased your risk. It might pay off. It might not. In March of 2020, SCHD dropped as much as SPY and VTI. VTI, SPY, and SCHD basically move in lockstep: https://www.portfoliovisualizer.com/bac ... ion3_3=100
You bring up all great points.

How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?

https://www.portfoliovisualizer.com/bac ... tion3_3=40
401K:(VDIGX 70%, VGIT 30% ) Taxable:(VT 70, BND 30%)
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Wiggums »

The Fed has taken a completely different approach with the pandemic. I wouldn’t assume that the back testing and those funds will behave the exact same way. Having said that, if you can stay the course, you should be fine. Once the Fed starts raising rates, my guess is that they will do so at each subsequent meeting. It is very possible that bonds will do well in the next few years especially if money flows back in.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by exodusNH »

invest2bfree wrote: Fri Aug 27, 2021 9:31 am You bring up all great points.

How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?

https://www.portfoliovisualizer.com/bac ... tion3_3=40
Look what happens when you choose 1993 as your start date.

There's a reason you hear "lies, damn lies, and statistics". It's very easy to manipulate data to get it to show whatever you want.

I liken this to a seatbelt. If I say "100% of the time you are better off wearing a seatbelt", you can pull a few examples every year where that's not true. But cherry-picking the 5 people out of the 38,000 involved in fatal accidents doesn't make it a good idea to not wear your seatbelt.

From a risk situation, 100% stocks is much riskier than 60/40. You see that in your 3rd portfolio -- cash is just a 0-coupon bond sold for face value. Look at what that ballast did for the returns vs 100% stocks.
Robert20
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Robert20 »

invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
How about some income ETFs like JEPI/NUSI which has downside protection and decent monthly dividends also.
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jh
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by jh »

.....
Last edited by jh on Fri Oct 08, 2021 3:45 pm, edited 1 time in total.
Retirement: 401k = 75/25 AA; Roth IRA = PSLDX; Pension = 20+ years vested | Taxable (financial independence???): VYM ($748k market value; dividend income guesstimate = $21,636 for 2021) | Cash: $45k
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invest2bfree
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

jh wrote: Fri Aug 27, 2021 11:15 am OP, I agree with your reasoning and like your new allocations. I have been a dividend growth investor for decades and I think that SCHD is one of the best dividend growth ETFs available. I like individual stocks though. I have an individual stock portfolio which relies on etfs like SCHD for the stock selection process.

So, for my portfolio I use a couple of ETFs (SCHD, DGRO, DGRW, DHS, VYM, VIG) and I use those as my stock selection screens. What I do is try to own the top 20 stocks from each. Buy and hold, never sell. Each stock is purchased up to an amount of $20k (selected because on a $1M portfolio, going $20k per stock gives a 50 stock portfolio w/ each stock equal to 2%, equally weighted).

I do not rebalance, but if a stock falls by 20% and it is still a top 20 stock in one or more of the ETFs then I will invest up to another $20k in that stock within a one year period.

I take a look at these ETFs once a year and if I don't own something in the top 20 I will add it to my portfolio and start buying it up to $20k.
great idea if it works for you.

What I like about schd is it can re-balance with out triggering a tax event.

It also is a very active index fund with very stringent value screens.

Its fees is 0.07. SCHY is higher at .14 but still better than mose active funds. vdigx charges .25
401K:(VDIGX 70%, VGIT 30% ) Taxable:(VT 70, BND 30%)
Charon
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Charon »

invest2bfree wrote: Fri Aug 27, 2021 11:23 am What I like about schd is it can re-balance with out triggering a tax event.
This suggests to me that much/most of your holdings are in taxable accounts. In which case, why on Earth would you ask us for advice after you've already made the move? You've already incurred the cost of changing your funds, so you're not going to change back even if we universally opposed what you did.
soitgoes2
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by soitgoes2 »

A shift from 60/40 to 100 stocks dramatically increases risk and decreases diversification if that I what you want to do fine. But I think this does not track with your explanation.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by bloom2708 »

Mike Scott wrote: Fri Aug 27, 2021 8:47 am My opinion is that you have absolutely added more risk and will pay more taxes for a dubious benefit while shifting away from one of the all time classic standard portfolios.
+1

Dividend stock funds are still stock funds in a narrower slice and can drop by large percentages. Dividends can/are cut or lowered during the market swoons.

Not sure it will accomplish the goal intended, but if you stick with it, it may work out fine. Or may not. Nobody knows.
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jh
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by jh »

.....
Last edited by jh on Fri Oct 08, 2021 3:44 pm, edited 1 time in total.
Retirement: 401k = 75/25 AA; Roth IRA = PSLDX; Pension = 20+ years vested | Taxable (financial independence???): VYM ($748k market value; dividend income guesstimate = $21,636 for 2021) | Cash: $45k
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by mrspock »

I don’t get this play at all. SCHB
( or SCHX) plus a combo of SCHY/SCHD maybe… but this makes no sense. You lost all yours of your tech exposure, dramatically changing your equity composition.

It’s like being in 1910 and dumping Ford and Coca Cola. Doesn’t make much sense.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by burritoLover »

You basically moved from two hands on the wheel with a seatbelt fastened to riding on the hood of the car with ropes attached to the steering wheel.

You are chasing yield where yield is meaningless. Stock dividends are not bond interest - even if you completely ignore the vastly lower volatility of bonds. Stock dividends are meaningless - you are moving your own money from one pile to another and thinking you materialized cash out of thin air. Stock dividends do not increase your net worth.
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BabaWawa
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by BabaWawa »

At your young age of 47, I don't think 100% equities is a problem. My question is why did you feel the need to be 60/40 earlier. Was that a reaction to earlier market declines. Pick an allocation and stick with it. The next time you change allocation make sure it's based on changes in your personal situation and not performance chasing.

Many here will question your emphasis on dividend enhanced equity ETFs. I don't even do that in retirement, instead focusing on a total return for my withdrawals.
Last edited by BabaWawa on Fri Aug 27, 2021 12:40 pm, edited 2 times in total.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by HanSolo »

invest2bfree wrote: Fri Aug 27, 2021 7:55 am Any opinion on what I have done?
Looks fine to me. It's different from what I do, but I'm a different person. As long as you know what you're buying, I see no problem in buying it. Just one thing, you might want to change your sig (it still says 60/40).
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by KingRiggs »

[/quote]

I will for example also look at the Nasdaq 100 if I need to boost my total return to keep up with the S&P 500.

[/quote]

Why not just buy the S&P 500? It's cheap and you'll match the benchmark you want every year... :confused
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by TJat »

I think you're trying to find the holy grail of increased return for less risk. While maybe this is possible, I'm skeptical that a thinly diversified fund approach is the way to do it.

- There is no guarantee that companies don't cut their dividends. It's certainly happened before
- Issuing dividends lowers the stock price, so it's just passing off the sell decision from you to the companies you're buying from.
- You're now 100% invested in equities, which despite misconceptions about dividend safety, dramatically increases your risk rather than diminishes it

I don't think it makes sense and hope you didn't incur capital gains moving to this allocation. However, best of luck
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Dave55 »

burritoLover wrote: Fri Aug 27, 2021 12:23 pm You basically moved from two hands on the wheel with a seatbelt fastened to riding on the hood of the car with ropes attached to the steering wheel.

You are chasing yield where yield is meaningless. Stock dividends are not bond interest - even if you completely ignore the vastly lower volatility of bonds. Stock dividends are meaningless - you are moving your own money from one pile to another and thinking you materialized cash out of thin air. Stock dividends do not increase your net worth.
+1 Fabulous and right on the mark!

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Wanderingwheelz »

invest2bfree wrote: Fri Aug 27, 2021 8:08 am
Wanderingwheelz wrote: Fri Aug 27, 2021 7:57 am
invest2bfree wrote: Fri Aug 27, 2021 7:55 am Hello,

I migrated from a 60/40 VT/BND based portfolio to a 50/50 schd/schy portfolio.
SCHD - > (2.8% yield) Schwab Strategic Trust - Schwab U.S. Dividend Equity ETF
SCHY -> (3.6% yield) Schwab International Dividend Equity ETF

My reasons are as follows-

1. I feel bnd is basically dead money with just 2% yield not covering inflation. If there is taper or higher inflation the bond part of portfolio will be affected.
2. More and more of VT is dominated by growth stocks with CAPE = 39 and forward p/e=24 this is a recipe for disaster.

3. This reason is more personal. At age 47, if we get into repeat of 2000-2011 or a 1968-1982 market cycle and I lose my job at the same time. It would be disastrous for me to start selling my stocks. Having investments in dividend stocks would help me ride this downturn better.

What I did is purely a factor of my age and the fact that I may not get a similar high paying job in the future will be forced into retirement.

Any opinion on what I have done?
When do you plan to make your next big change? Why?
Currently no plans of changing. Key question is will I see a significant under performance with a value weighted portfolio.

I did seriously think about the following but because of valuation did not include vti/vxus.
25% VTI
25% VXUS
25% SCHD
25% SCHY
You didn’t have any plans on changing when you invested in VT and BND, either. But stock dividends seduced you away from bond interest payments. You aren’t the first person to have that happen- particularly in a very strong equity uptrend/low bond yield environment.

The point has been well made by others that what you’ve done won’t become a problem until it does. I wouldn’t want to test your new dividend income strategy at age 47 in a world where the vast majority of equity returns are being produced by stocks that do not pay dividends, though, that’s for sure.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Candor »

Why are you posting now? Are you already questioning your decision?
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by 000 »

Seems like a big move to an unnecessarily concentrated portfolio.

Dividend strategies haven't provided much if any security over the vanilla index and although I could see a valuation case for buying dividend payers today I suspect they have about as much risk as VT.

One could instead consider diversifying BND further with TIPS, gold, etc.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by TropikThunder »

invest2bfree wrote: Fri Aug 27, 2021 8:26 am It is because of performance.

Somehow the value screens in schd makes it very similar to vdigx a fund I like. I wanted a etf very similar to vdigx and schd fits the bill.
invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?
OP, you can’t use VDIGX as a comparison before 2010 since it wasn’t a dividend fund until then. It tracked a variety of different Utilities indexes from inception to 1992, then the Russell 1000 until 2010. Only in 2010 did it start using the Dividend Achievers Select Index. So from 2000 - 2010 in your backtest it was just a Large Cap Blend fund.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by sycamore »

TropikThunder wrote: Sun Aug 29, 2021 8:37 pm
invest2bfree wrote: Fri Aug 27, 2021 8:26 am It is because of performance.

Somehow the value screens in schd makes it very similar to vdigx a fund I like. I wanted a etf very similar to vdigx and schd fits the bill.
invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?
OP, you can’t use VDIGX as a comparison before 2010 since it wasn’t a dividend fund until then. It tracked a variety of different Utilities indexes from inception to 1992, then the Russell 1000 until 2010. Only in 2010 did it start using the Dividend Achievers Select Index. So from 2000 - 2010 in your backtest it was just a Large Cap Blend fund.
+1.

And anyway VDIGX is an actively managed fund, so even if you find that SCHD is "very similar" to VDIGX right now, that's not guaranteed to last. The VDIGX managers could change their stock selection and then where you would be?

If you want to backtest "dividend growth" further back than VDIGX, there's always T. Rowe Price Dividend Growth (PRDGX) which has been around since 1993. But again, it's actively managed so SCHD may not always track it.

On the other hand, if you want an ETF that's like a "dividend growth" fund, why not T. Rowe Price's very own TDVG Dividend Growth ETF? :) Unfortunately, it's been around for less than a year so you can't use backtests to prove anything.

[Edit: fixed ticker symbol]
Last edited by sycamore on Mon Aug 30, 2021 10:07 am, edited 1 time in total.
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invest2bfree
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

sycamore wrote: Sun Aug 29, 2021 10:39 pm
TropikThunder wrote: Sun Aug 29, 2021 8:37 pm
invest2bfree wrote: Fri Aug 27, 2021 8:26 am It is because of performance.

Somehow the value screens in schd makes it very similar to vdigx a fund I like. I wanted a etf very similar to vdigx and schd fits the bill.
invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?
OP, you can’t use VDIGX as a comparison before 2010 since it wasn’t a dividend fund until then. It tracked a variety of different Utilities indexes from inception to 1992, then the Russell 1000 until 2010. Only in 2010 did it start using the Dividend Achievers Select Index. So from 2000 - 2010 in your backtest it was just a Large Cap Blend fund.
+1.

And anyway VDIGX is an actively managed fund, so even if you find that SCHD is "very similar" to VDIGX right now, that's not guaranteed to last. The VDIGX managers could change their stock selection and then where you would be?

If you want to backtest "dividend growth" further back than VDIGX, there's always T. Rowe Price Dividend Growth (PRDGX) which has been around since 1993. But again, it's actively managed so SCHD may not always track it.

On the other hand, if you want an ETF that's like a "dividend growth" fund, why not T. Rowe Price's very own TVDG Dividend Growth ETF? :) Unfortunately, it's been around for less than a year so you can't use backtests to prove anything.
Thanks.

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Marseille07
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Marseille07 »

It's not necessarily a bad move if you can hold onto 100/0. But you need to make sure not to panic sell at the bottom.

It's funny you mention 2000~2011...if you think you're mitigating 2000~2011 by going from 60/40 to 100/0, you're mistaken I'm afraid. 60/40 did much better during the period.
WhiteMaxima
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by WhiteMaxima »

Why not VYM and VYMI?
jarjarM
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by jarjarM »

If your concern is about how the funds will do with 5% withdraw rate in the last 2 decades, why not add in small cap???

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Or just do SCV tilt.
LeftCoastIV
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by LeftCoastIV »

TJat wrote: Fri Aug 27, 2021 12:48 pm I think you're trying to find the holy grail of increased return for less risk. While maybe this is possible, I'm skeptical that a thinly diversified fund approach is the way to do it.

- There is no guarantee that companies don't
cut their dividends. It's certainly happened before
- Issuing dividends lowers the stock price, so it's just passing off the sell decision from you to the companies you're buying from.
- You're now 100% invested in equities, which despite misconceptions about dividend safety, dramatically increases your risk rather than diminishes it

I don't think it makes sense and hope you didn't incur capital gains moving to this allocation. However, best of luck
To layer on, with OP's AA adjustment, they have taken on substantially more risk (13.4% standard deviation, -33% worst year in the backtested time period) versus their 60/40 portfolio (8.7% std dev, -21.5% worst year).

That's OP's choice of course, but he/she has chosen to overhaul their AA to increase risk in pursuit of higher returns.

Interestingly, they do appear to have improved their Sharpe Ratio.

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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by HanSolo »

WhiteMaxima wrote: Mon Aug 30, 2021 12:07 am Why not VYM and VYMI?
Different screening criteria. Maybe some people want to avoid stocks of companies carrying heavy debt, for example.

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aristotelian
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by aristotelian »

Usual approach is to take less risk as they age. Are you OK with a 2001 or 2008 type of event? Yes you will be receiving dividends but you will be losing market value as if you were 100% VTI. This is also a pure market timing move although the usual advice is to buy stocks when low. Personally I would stick with a diversified portfolio accepting that sometimes you are going to lose money on one side or the other from time to time.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by LeslieSmiley »

OP is not seeking advice, instead, affirmation and/or post-mortem analysis because OP had already shifted the AA before posting here.

OP seems to confuse dividend stocks with fixed income investment based on the rationale of relying on dividend stocks to ride out a market downturn.

But in reality, as many have stated, dividend stocks drop along with the other stocks in value so OP will sustain more loss by increasing stock AA either on paper or in real life if OP doesn't have enough cash to pay for expenses and as a result has to sell stocks at low.

Shifting from 60/40 to 100/0 is totally fine if you are doing so knowing why you are doing so.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Wanderingwheelz »

LeslieSmiley wrote: Mon Aug 30, 2021 7:21 am OP is not seeking advice, instead, affirmation and/or post-mortem analysis because OP had already shifted the AA before posting here.

OP seems to confuse dividend stocks with fixed income investment based on the rationale of relying on dividend stocks to ride out a market downturn.

But in reality, as many have stated, dividend stocks drop along with the other stocks in value so OP will sustain more loss by increasing stock AA either on paper or in real life if OP doesn't have enough cash to pay for expenses and as a result has to sell stocks at low.

Shifting from 60/40 to 100/0 is totally fine if you are doing so knowing why you are doing so.
Yes. His post from yesterday was quickly locked, but it fits the narrative perfectly.

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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by burritoLover »

Even though he doesn't understand that stock dividends are effectively a net nothing, perhaps, he's less likely to panic sell in a crash with a 100% stock allocation because he focuses on the higher yield stock dividends that are still "coming in". It could be a behavioral boon for those that normally wouldn't be able to handle a 100/0 portfolio as long as they remain ignorant about how the market works.

And even though that is a concentrated portfolio, it probably has plenty of exposure to the market factor and some to value. Maybe his net returns would actually be higher at 100/0 high yield vs typical 60/40 (at low bond yields) because this behavioral quirk allows him to tolerate 100/0. Although sequence of returns could rear its ugly head potentially near retirement.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

burritoLover wrote: Mon Aug 30, 2021 8:12 am Although sequence of returns could rear its ugly head potentially near retirement.
Hi,

Can you clarify above statement"?

SCHD has 2.75% and SCHY 4% a blended rate is 3.5%.

As long as dividends don't get cut and I get 3.5% dividend back.

My withdrawal rate is 3.5% or less.

It should not matter whether a market goes through 2000-2010 scenario or 1971-1981 scenario I will be protected.

Folks who are exposed SRR are the ones who need to be selling thier stocks or bonds at the lows?
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by JoMoney »

invest2bfree wrote: Mon Sep 06, 2021 10:16 am
burritoLover wrote: Mon Aug 30, 2021 8:12 am Although sequence of returns could rear its ugly head potentially near retirement.
Hi,

Can you clarify above statement"?

SCHD has 2.75% and SCHY 4% a blended rate is 3.5%.

As long as dividends don't get cut and I get 3.5% dividend back.

My withdrawal rate is 3.5% or less.

It should not matter whether a market goes through 2000-2010 scenario or 1971-1981 scenario I will be protected.

Folks who are exposed SRR are the ones who need to be selling thier stocks or bonds at the lows?
"as long as dividends don't get cut", which is what happens in big downturns.
A $10,000 investment in VYM at the beginning of 2007, dividends not reinvested, annual distributions:
2007: $262
2008: $279
2009: $226
2010: $211
(PV Link , click "annual returns" tab to see income distributions)

Going from $262 to $211 is a pretty big % drop in income.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by muffins14 »

You’re assuming dividends won’t be cut. That’s like assuming stocks always go up then saying your plan is guaranteed to work because stocks can only go up.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

muffins14 wrote: Mon Sep 06, 2021 10:33 am You’re assuming dividends won’t be cut. That’s like assuming stocks always go up then saying your plan is guaranteed to work because stocks can only go up.
Iam willing to take that risk.

SCHD has a screen for leverage and actively filters out high debt companies.

My nightmare scenario is my vt is down 50% and I lose my job at the same time. Then panic sets in.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by marshall »

I would say a nightmare scenario is ... (1) you are in retirement, (2) value of SCHD/SCHY goes down 50-60% and (3) there is a 30% cut in dividend payments. If a 30% haircut in income puts you in a position where it does not meet your retirement spending needs and there are no bonds or cash, you then have to start selling stocks at fire-sale prices to meet income requirements.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by Beensabu »

invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?

https://www.portfoliovisualizer.com/bac ... tion3_3=40
Change your start date to 2001. What do you see?

The difference comes down to them moving in different directions during 2000. That's it.

So why? Why did they move in different directions that one year? Do you know? How likely is it that situation will be duplicated in the future? How likely is it for dividend funds to suddenly have low correlation with the market right when you need them to?

You know what else held most of its value from 2000-2017? A 60/40 portfolio with Total Bond, which is what you previously had.
invest2bfree wrote: Mon Sep 06, 2021 11:12 pm My nightmare scenario is my vt is down 50% and I lose my job at the same time. Then panic sets in.
Other kinds of stocks are not a substitute for bonds.
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by muffins14 »

invest2bfree wrote: Mon Sep 06, 2021 11:12 pm
muffins14 wrote: Mon Sep 06, 2021 10:33 am You’re assuming dividends won’t be cut. That’s like assuming stocks always go up then saying your plan is guaranteed to work because stocks can only go up.
Iam willing to take that risk.

SCHD has a screen for leverage and actively filters out high debt companies.

My nightmare scenario is my vt is down 50% and I lose my job at the same time. Then panic sets in.
But a 60/40 portfolio would probably still have 70% or more of its value after a 50% drop in stocks, whereas your new portfolio of 100% stocks would have gone down 50%.

Starting with $1M, would you rather have 750k and recently rebalanced, and probably 1.5-2% dividends plus bond coupon payments, or have 500k and 3.5% dividends?

I guess you know your answer but for me, I’d much rather have the 750k with a chunk of bonds
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by invest2bfree »

Beensabu wrote: Tue Sep 07, 2021 12:16 am
invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?

https://www.portfoliovisualizer.com/bac ... tion3_3=40
Change your start date to 2001. What do you see?

The difference comes down to them moving in different directions during 2000. That's it.

So why? Why did they move in different directions that one year? Do you know? How likely is it that situation will be duplicated in the future? How likely is it for dividend funds to suddenly have low correlation with the market right when you need them to?

You know what else held most of its value from 2000-2017? A 60/40 portfolio with Total Bond, which is what you previously had.
invest2bfree wrote: Mon Sep 06, 2021 11:12 pm My nightmare scenario is my vt is down 50% and I lose my job at the same time. Then panic sets in.
Other kinds of stocks are not a substitute for bonds.

Bonds will not protect us this time. Bond yields were 5% in 2000 and they are 1.3% right now. Max bonds may do is behave like cash. Worse if inflation rears its ugly head.

Iam counting that value and international hold up better in the next sell off.
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muffins14
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Re: Moved From a 60/40 VT/BND to 50/50 SCHD/SCHY

Post by muffins14 »

invest2bfree wrote: Tue Sep 07, 2021 8:09 am
Beensabu wrote: Tue Sep 07, 2021 12:16 am
invest2bfree wrote: Fri Aug 27, 2021 9:31 am How can you justify what happened in 2000-2017 where s&P ran out of money.
VDIGX literally held most of its value?

https://www.portfoliovisualizer.com/bac ... tion3_3=40
Change your start date to 2001. What do you see?

The difference comes down to them moving in different directions during 2000. That's it.

So why? Why did they move in different directions that one year? Do you know? How likely is it that situation will be duplicated in the future? How likely is it for dividend funds to suddenly have low correlation with the market right when you need them to?

You know what else held most of its value from 2000-2017? A 60/40 portfolio with Total Bond, which is what you previously had.
invest2bfree wrote: Mon Sep 06, 2021 11:12 pm My nightmare scenario is my vt is down 50% and I lose my job at the same time. Then panic sets in.
Other kinds of stocks are not a substitute for bonds.

Bonds will not protect us this time. Bond yields were 5% in 2000 and they are 1.3% right now. Max bonds may do is behave like cash. Worse if inflation rears its ugly head.

Iam counting that value and international hold up better in the next sell off.
I dunno. Yields on 10Yr treasuries were 1.8% in Jan 2020 and the price had no problem going up massively as a counterbalance to stocks. I don’t think you can be so sure “this time is different” because we’re seeing rising yields and at 1.3% on the 10Yr today. Cash will never have the negative correlation plus larger variance that bonds will
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